Cash Flow Forecasting- What Is It?

Forecasting how much cash flow comes in and out of business is typically the responsibility of said business's financial team. But what if you are a freelancer or someone who wishes to learn the trick of the trade?

Assembling a forecast requires continuous input from many stakeholders and data sources, especially in larger companies that take many hours to organize.

That is why we've compiled this article on building a cash flow forecast the proper way for those willing to learn what it takes to visualize how to utilize their cash effectively.

What Is Cash Flow?

Cash flow forecasting is the process of trying to obtain an estimate, the forecast, of a company's financial position across all business areas. The cash flow forecast shows projected cash based on the expenses and yearly income flowing in and out of the company.

It is an essential tool to help make decisions regarding funding, investments, and even capital expenditure.

This process can be carried out for a range of timelines, with a short-term forecast predicting around 30 days, used to identify needs or excess money in the intermediate-term. In comparison, longer-term forecasting lasts about three years ahead or longer, if required. The only thing with a long time is the less accurate the calculation.

The Purpose of Forecasting

Predicting the position of your cash should be the top priority of many, if not all, companies, as it helps business owners stay on top of their expenses, prepare for the future, and helps to make better, more informed decisions.

At the most beginner level, a forecast can tell if your company will have a positive cash flow (more money coming in than it's filtering out) or a negative flow (more cash going out than coming in) at any given point in time.

Armed with an accurate prediction, you can minimize the buffer size needed for unforeseen expenses, allowing the company to use its excess cash better.

How To Forecast Your Cash Flow

The best way to forecast the cash flow of your business will always depend on a few given factors: your business’s objective, the investor’s requirements and how accessible the information within your organization is.

Here are a few steps to review when deciding to forecast your cash flow:

1. Determine Your Objective

To ensure that you see actionable insight from your cash flow forecast, you must first decide the business's objective that the estimates should be focusing on calibrating.

It is found that more commonly, organizations use their forecasts for one of the following reasons:

Interest reduction: Ensures the business has enough money in their pocket to make payments on any loans or debt the company has taken on.

Planning For Growth: This allows the business to see if they have enough working capital available to fund activities that will help with the growth rates of revenues in the future.

Risk Management: Creates a range of vision into potential liquidity that could arise in the future so that there is more time to address any that occur.

2. Choose A Method

There are about two primary types of forecasting methods: direct and indirect. The main difference is that forecasting directly uses flow data, whereas indirect forecasting tends to use projected balance sheets or income statements.

Choosing a method that works for you will depend on the objective you've selected, as well as any kind of data you might have in hand to build your forecasting model.

3. Choosing a Timeline

Once the business objective and method of forecasting are determined, the next big thing to consider is how far in the future you would like your forecast to look into.

Here are a few forecasting periods that many recommend businesses to follow:

Short Period: short term forecasts are typically four to five weeks in length and contain a daily breakdown of receipts and cash payments.

Medium Period: Medium terms typically look around three to six months in the future and are extremely useful for looking at the interest and debt reduction.

Long Period: These periods last around six to twelve months in the future and are generally used as a starting point for budgeting processes annually.

Forecasting Your Solutions

Cash flow software can help companies forecast their future flow with greater accuracy and less time commitment.

Interested in forecasting but not sure if you are confident enough to do it on your own just yet? Book an appointment with one of our accountant specialists to start your forecasting solutions today.

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Year-End Tax Tips Everyone Should Know

Tax planning should be seen as an annual affair. But, as the year's end approaches, that's when many accountants believe it is a perfect time to sit down and review any, if not all, personal finances you have.

It's always best to take advantage of any planning opportunities available to you before the deadline. Unsure of where to begin? Here are a few year-end tax tips you might wish to consider:

1. Take Advantage of Loss

Suppose you are someone who has capital gains this year, otherwise known as you sold an investment that cost more than you paid while still holding the securities with capital losses. In that case, you should consider selling the securities to offset the capital gains.

By doing this, you are replacing your sold investment with low value and replacing it with a similar investment to offset the capital gains tax liability. You should also consider deferring your investment sales to next year if you believe your tax rate will be lower than the previous year.

To do this, it's always best to talk to your financial planner or bank to see if these strategies are the right step for you to save some money.

2. Maximize TFSA Contributions

While this year's Tax-Free Savings account, otherwise known as TFSA contribution limit, is around $6000, you possibly could have some leeway if you had yet to maximize your contribution amount in earlier years.

If this is your first contribution, it's possible to contribute over $70,000, that's if you're over the legal age of 18 and have been a Canadian resident since 2009, when TFSA was founded.

It's also good to mention that withdrawing any money from your TFSA account is tax-free.

3. Paying Tax-Deductibles

This means to pay off all investment management fees you may have, such as childcare expenses, medical bills, accounting fees, and alimony.

By paying your tax-deductible, otherwise known as an expense that individuals or businesses can subtract from their gross earnings when completing tax forms so that the cost of the deduction reduces the reported income, many can reduce the amount owed at the end of the year.

4. Make A Charitable Donation

If you contributed to a charity by the end of December, you might then receive what's called a donation credit for your tax year. With this, it's possible to claim the total amount of the donation on your tax return.

You need to find a preferred charity and make the payment to the deductible gift recipient.

5. Contribute to Maximum Retirement

There is no better investment than placing money in your tax-deferred retirement savings accounts. This is because they can grow to a substantial amount all due to their ability to

the compound over time with the benefit of being free of taxes.

In many cases, company-sponsored plans (401) plans are the best deal to make because many employers often match many contributions.

With CapexCPA, we'll ask you all the simple questions about your finances to help you fill out the most suitable tax forms to have you ready to go for tax season and any other accounting needs.

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Taxes You Shouldn’t Forget to Write Off: Working from Home Edition

Legislators have written many lines in the tax code throughout the years to soften the hit of the extra costs taxpayers and the self-employed must shoulder as they continue to run their businesses. Yet despite this, many new self-employed workers don’t use these loopholes because they don’t know about them.

This is why It’s best to do your research starting as a remote worker so that you can take advantage of the assistance available to help lower your tax bill at the end of the year.

If you happen to be someone who recently went into a self-employed career, check out these few taxes write-off tricks.

Who Qualifies?

Even if you only go to the workplace occasionally, you might be able to claim freelancer expenses. To be eligible, the CRA has said that you must have spent a minimum of 50% of your working hours remotely in four consecutive weeks.

These qualifications include both full-time and part-time hours.

Those who do make the cut can deduct a flat rate, or even possibly part of their workspace costs, such as rent, heating, electricity, and in some cases, maintenance.

How Much Can I Deduct?

Generally, depending on the square footage of your workspace, eligible self-employed workers can deduct up to 20% from their business space.

Home Office Deductions

Self-employed workers can deduct their office expenses from their business income if applicable. This includes both individuals who work from home full-time as well as those who do freelancing as a side hustle.

For an insight of all the areas you might be able to deduct as a freelancer, it has been said you can claim the following:

. Heating

. Rent

. Minor repairs

. Mortgage interest

. Cleaning and maintenance

. Electricity

. Home Insurance (only applicable to those who are self-employed, or an employee and work based on commissions)

The CRA recognizes those listed above as legitimate expenses related to either running an at-home business or working out of a home office. A portion of each could be deducted at the end of the year during tax season.

Automobile Expenses

Many don’t realize it, but at-home workers have the opportunity to write off automobile-related expenses.

If applicable, numerous workers can deduct the total time their vehicle was used for business purposes. So, for example, if you had $7000 in total expenses (insurance, maintenance, licensing fees, etc.), you might be able to deduct up to $4000 during tax season.

Don’t Waste Your Savings

Once your taxes are filed for the year and you collect your refunded money, it’s best to be mindful of what you do with those extra savings. As we have learned in the past few years (with pandemics and lockdowns), unpredictability can strain your finances.

If you do happen to receive some money back, you should also consider using those refunds and placing them in a high-interest savings account. It’s a great way to have backup money in the case of emergencies but also has the opportunity to double your money faster than it would in a traditional bank account.

Those looking to start taking control of their investments should explore CapexCPA. This online accounting firm offers some of the best resources and tools to help taxpayers make informed decisions when dealing with their financial needs.

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Should I Do My Own Taxes or Hire a Professional?

Money is a big part of our lives. Without the economy, there is no working structure that we know how to follow to balance how we live.

Being dependent on such a viable resource requires organization and tracking so that the money circulating the world can be re-used to generate more business, creating more money.

This is where personal income taxes come into play.

Thankfully you don't need a background in accounting or be good with numbers to complete your taxes. Yet, many can find it tiring after a while, as collecting all your paystubs and purchases can take time and effort.

Time in which many might not have, which is why it's lucky to say that individuals are not required to keep financial records by law, meaning that hiring someone is a possibility.

Which brings us to the question should I do my taxes or hire an accountant?

Some things to think about

●      Doing your own taxes will take time and patience.

●      If you seem to have no time on your hands, hiring a tax professional might be the best option.

●      A certified accountant is more expensive than hiring that of a non-certified accountant.

●      Accountants and certain bookkeepers can help with tracking personal finances, including your taxes.

●      Doing your taxes allows for financial insight while being a money saver compared to hiring someone else.

Doing Your Own Taxes

Many people enjoy doing their tax returns. It can be easier for those living quite simple lives, and some enjoy the math and being organized when it comes to their expenses.

Some are even very interested in the tax system and its changes, preferring to be up to date and financially aware.

If any of these is the case for you, outsourcing the task to another individual is probably an unnecessary step.

Hiring A Tax Expert

Using a professional accountant often means that those taxpayers can take full advantage of all entitlements and deductions to which they are entitled without missing any opportunities.

Besides just completing tax returns, an accounting might also offer other forms of financial assistance and planning.

When Should You Hire an Expert?

If you feel as though you don't have the time or patience to record your income and expenses every year, you can always engage in professional help. Anyone can hire a qualified professional, especially those who believe their time is worth more than they'd pay for an accounting service.

But who does this type of work exactly? When many talk about hiring a professional, they often use the term accountant loosely to refer to workers who revolve in mathematics and statistics, such as bookkeepers and tax preparers; even in some cases, a tax advisor can get the job done.

It's always best to review as many opportunities as you can when hiring someone to take over your taxes, as each firm has its own set of services that are more than likely different from any other company.

This means it's best to review so that you end up with a company that works best with your needs.

Lost on where to begin? Don't hesitate to look at CapexCPA, an online accounting platform that uses some of the best cloud technology to this date to help you figure out all your accounting needs and wants.

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Are You a Freelancer? Check Out These Tax Tips

With job losses happening worldwide and unemployment numbers going down in the past few years, freelance work has spiked and turned into something that can replace full-time staff positions for many individuals.

Because it's such an exciting opportunity that many approve of and wish to partake in, we can only expect to see the market of freelancing skyrocket past any expectations in terms of economic stability.

But since this is new territory for the marketing world, there are some things regarding tax that many should learn to understand as it's forever changing in this stage of universal development.

If you are new to freelancing, doing your taxes will not look the same as it once did in previous years. So here are a few tax tips for freelancers to stay on top of the tax game:

Baby Steps

When you're new to this form of tax return, it's best to gather all your sources of income. As a freelancer, you need to be extremely organized in keeping track of all your 1099 forms, receipts, expenses, and client lists.

It's best to start out hoarding any information you can as you begin this journey and remember that freelancing isn't a hobby- it's you owning a business. Approach your accounting or bookkeeping work as you would at any other company you've worked for before.

If you feel you can't keep track and have a little extra cash to spend, hiring a third party might be a good option for keeping your taxes in line.

Keeping Track

The great news about being a freelancer is that you can still write off certain expenses.

This means you are able to expense business trips, vehicles, and any materials you may need to do your work. This is an important piece when filing your taxes, especially because many freelancers don't use it to their advantage. Other areas you might be able to deduct are marketing, health insurance, and contract work.

This is why organized is essential for all your files and receipts, as keeping track of your expenses and not overlooking viable ways to earn back money will make your freelancing career worth the extra work, especially when that check comes in the mail.

Putting Money Away

Many freelances believe the best thing to do when preparing for tax season is to put aside at least 25% of what you make to ensure you aren't strapped for money come the time to pay your taxes.

With this approach, self-employment taxes should be fully covered, preventing a large number of expenses from appearing at the end of the year.

Opening a separate savings account where it can be set up for direct and automated deposits from your main checking account is a good idea to think about as it will help to keep your tax savings on track.

Home Deductions

Since so many freelancers work from home, the home office deduction tax can be applied. The CRA allows freelancers to write off everything from utilities to rent for the portion of your home that you choose to use as your office space.

The only catch is that office space must be exclusively used for your self-employment work and nothing else.

After reading all these great tips, are you feeling like you want to be more organized this tax season? If so, then don't hesitate to take a look at CapexCPA, a digital accounting firm that is there to help with all your financial needs. Making tax season a stress-free experience for years to come.

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How To Write Off Personal Vehicle Expenses

When it comes to Canadian taxes, there are numerous expenses people can write off. Still, few people know; there are several car-related costs an individual can obtain that could help earn a bit of income at the end of tax season.

So, the real question you should be asking yourself is: have you used a work vehicle or any transportation device for business purposes during this year’s tax season?

If the answer to this question is yes, this article will be a great guide to help explain which vehicle expense claims you could be making on income tax within Canada and how the process works.

The two types of claims for motorized vehicle expenses

Currently, there are about two different claiming styles an individual can use, broadly speaking, when looking to reclaim tax reduction money.

1. Those related to the usage of a vehicle (this claim can be found online 9281 – Motorized vehicle expenses).

2. The taxes related to purchasing a motorized vehicle (This can be claimed as Capital Cost Allowance).

What types of vehicle expenses can be written off?

Luckily for business owners, there are quite a few vehicle expenses that can be claimed regarding anything remotely connected to the use of a work vehicle; some of these expenses include:

. Fuel and cost of oil

. Leasing costs

. License and registration fees

. Insurance

. Any maintenance and repairs

Owning vs. leasing your vehicle

There can be a difference between driving a passenger vehicle that is your own or one that is leased. For each, you may have specific limits on the number of deductions that can be taken for interest.

If someone else is sharing the ownership or loan with you, the limits still apply, but the total sum you and your joint partner can’t exceed the amount one owner is entitled to. Whether you decide to lease or buy a vehicle, the CRA allows the same number of deductions for the expenses such as gas, oil changes, insurance, etc.

The best decision to make when discussing these two options is to seek out self-employment experts for advice to better understand which choice suits what you are looking for.

Final words

The best advice anyone could give to you regarding taxes is to keep all your receipts!

If you decide you want to cash in this tax season to try to make some money back, when it comes to your mode of transportation, it is best always to hold every receipt or piece of document you can to claim business expenses the right way.

Though many of these rules and guides may seem tedious and easy to forget, make sure you are taking a few minutes every day to tuck away any receipts in your console or documents folder. Which depict most vehicle expenses, will give you the best chance at feeling like a winner during tax season.

Connect with an accountant today!  Click on this link —> https://capexcpa.com/contact

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When To Register for GST/HST

If you are in the midst of starting up a small business, it might be the right time to think about when the best time is to register for GST.

GST is something that any profitable business has to sign up for at some point. Whether you are a contractor, consultant, sole proprietor, or entrepreneur, when you hit a fluctuation in your revenue that exceeds $30,000 in over four quarters, you then must have to register for your first ever GST/HST number.

It is good to note that there are different registration requirements when filing for GST/HST.

Suppose your company is a non-profit, public service body, or taxi/ride-sharing operation. In that case, you must review the CRA website to see what category your company falls in, or you may prefer to speak with your accounting professional to decipher what next steps you'll need to take.

What Is GST/HST?

A GST/HST is a goods and service tax that business owners or service providers must charge for any item or service they sell or provide to customers while being within Canada.

You will notice this tax is included in the final prices of commodities and is always paid by the customer, never the business owner. Instead, your job as the owner is to then pass it on to the government.

After you register your company, your GST/HST number will be part of your 'business number,' which the Canada Revenue Agency holds. You can easily register for that number online at Canada.ca by either fax, mail, or telephone at 1-800-567-4692.

What do You need for Registration?

There are four things you need on hand when registering for GST/HST These things include:

1. Effective Date of Registration – The effective date can usually be the day you've stopped being considered a small supplier.

2. Fiscal Year for GST/HST purposes – Usually, the fiscal year for GST purposes is generally the same as your income tax year.

3. Total Annual Revenue – This is a complete sum of the revenue you have made in a year; if you are a newer business, it's possible to give CRA a reasonable estimate.

4. Basic information – This means your general personal information.

Once you have all four of these, registering can be done much more efficiently and will take up less time.

Are There Any Benefits to Registering?

In the end, you have no real choice in whether or not you want to register. However, to counterbalance the money you've lost in paying the government taxes, you as the business owner can claim sales tax that is chosen from a wide variety of expenses that relate to your business.

This is a pretty cool aspect that should be thought about because by submitting these sales tax you are essentially reducing the amount of GST/HST you must give to the CRA.

At Capex, we work to help clients get ahead financially by using modern cloud technology designed to streamline their accounting. Together, we can track all your business expenses, putting you on the right track towards fulfilling your government tax filing obligations.

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8 Tax Tips for Older Adults

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Paying taxes can feel daunting, even if you're an older adult who's been doing it for years. However, it's an inevitable fact of life - a task everyone has to perform. Canadian laws around taxes can get complicated, and unless you're an accountant, you might struggle to keep up. Fortunately, there are ways you can make paying taxes less burdensome and more fruitful. 

As an older adult, you can ask your adult children for assistance as they are likely to be more updated with the latest tax changes. If that's not an option, or if you still would like to learn by yourself, there are useful tips you can follow.

Register for direct deposit and file online

You can get refunds faster and reduce delays if you file your income tax and benefit return online, register for direct deposit, and update your address and personal information. If you want to easily view and manage your tax and benefit information, it's strongly advised that you sign up for My Account, which trivializes this. For more information on online filing, deadlines, and other guidelines, you should visit Canada Revenue Agency's (CRA) Get Ready page.

Sign up for email notifications

The last thing you want is to fall prey to fraud, scams, and identity theft. To prevent being a victim, sign up for email notifications from the CRA, so you can be notified when you have new mail in your My Account or when critical personal information is changed on CRA records.

The CRA also has a page dedicated to providing information to help Canadians avoid scams and fraud.

Reach out to a professional

Free assistance from your relatives or volunteers is good, but nothing beats the work of a professional. If you've got a complicated tax situation on your hands, your best bet is to work with a financial professional. Unlike an accountant, financial advisors can see more of your finances and help you not only with taxes but also with investments and retirement funding. A financial advisor can help you navigate your way through financial decisions that have tax implications.

Use a tax return software

For those with a simple tax situation, hiring a financial advisor may not be worth it. Fortunately, you can learn to use tax return software. Tax return software can simplify the filing of taxes with a significantly smaller price tag compared to a financial professional. Learning to use one will allow you to save a lot of money in the long run. There are different tax return software out there, each offering a free and paid version. When deciding which to use, keep an eye out for features such as ease of use, OS compatibility, and languages supported. You also want software that offers a generous suite of features for its free version. Most of all, the software should be NETFILE approved. 

File your taxes on time

This one sounds like a no-brainer, but a lot of people keep making this mistake. Yes, filing taxes can be stressful, but pushing it aside and filing it late can result in more problems and more stress. Interest is charged on the penalties you accrue, and it can quickly pile up, surprising you in the worst time possible. Not only will it cost you more, but it will also require you to do more work. 

As in everything, the best practice is to avoid procrastination. If you're scared of dealing with taxes thinking you can't afford to pay them, know that you can set up a payment plan on taxes you owe, but you can't do this if you haven't filed up to date. Also, remember that it's not a crime to owe taxes, but it's a crime not to file them as they're akin to tax evasion. 

Managing your taxes is one thing; getting the most out of them is another. Aside from contributing to your country's funds, there are other benefits you can get out of your taxes, and below are some practices you can apply. 

Report tips and gratuities 

If you receive direct tips or gratuities in your line of work, you can report them to reap financial benefits. It can boost your total income, which can help you immensely down the road. With a higher total income, you can qualify for larger amounts of loans or mortgages. The contribution limit for your registered retirement savings plan will be higher. Lastly, if you decide to pay Canada Pension Plan or Quebec Pension Plan on tips and gratuities, you can raise the pension amount you can collect upon retirement.

Claim eligible medical expenses

Getting older is often tied to more health problems, hence more medical expenses. Given that specific criteria are fulfilled, you can get non-refundable tax credits for eligible medical expenses made throughout the year. Keep in mind that the expenses must be eligible in accordance with guidelines. The expenses need to have been made during the tax year and haven't been reimbursed previously. The amount should either be equal to three percent or more of your income or be larger than $2,397.

Split your pension income

If you make significantly more than your spouse, or vice-versa, pension income splitting can give you an advantage tax-wise. Those who are eligible can split up to 50 percent of their pension income with their spouse. Another advantageous situation is when one is working while the other is retired. While this practice can reap benefits, it can make paying taxes in retirement difficult to manage, so working with a financial advisor is recommended.

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What You Should Know About Tax Free Shareholder Loans

As a business owner and manager, you work hard and it is nice to be compensated for all that effort. After all, you got into the business to make money. There are several ways to get paid. 1. Salary 

2. Dividends 

3. Management fees 

4. Shareholder loan 

Each form of this payment carries its own tax implications. Today we will explore a shareholder loan. 

What is a shareholder loan? A shareholder loan is when you borrow money from the corporation that you own shares in. It's like borrowing from yourself, but with restrictions and tax implications. In this post, we'll answer some of your questions about shareholder loans, including how they work and what types of businesses qualify for them. 

A shareholder loan is issued from a company that if is repaid one year from the end of the taxable year, it is not necessary to include this as income of the borrower. So, first, you need to look at the fiscal year-end of the company. This is usually December 31, but not always. As an example, if the loan is issued on March 20, 2021, and the year-end of the company is December 31, the borrower has until the end of 2022 to repay. 

However, if the loan is not repaid within that time period, the full amount of the loan is taxable to the borrower. This is designed to keep the owner from just withdrawing amounts by loans without paying taxes. 

If you miss that one-year deadline, you can repay the loan, and all interest, in the future and then deduct the repayment from your personal income that year. This may mean the opportunity for an income split. 

It's hard to have a rule without exceptions and here is this one. A loan is made to a shareholder who is also an employee (or the employee's spouse or common-law partner), but the loan is not made to the person as a shareholder, plus the money is used to purchase a principal residence, a vehicle for business purposes, or to buy shares in the company, it falls in this exception area.

If all of this sounds complicated, that's because it is. Don't undertake this operation on your own. Consult with a tax attorney, CPA, or other professionals to be sure all the rules are followed and it will be to the best tax advantage of the company and the borrower. 

Paper Trail 

One important element of ensuring legality is demonstrating a paper trail. To start with, it must be created by the director’s resolution and approved. It has to be an arms-length arrangement. All the paperwork must be in order and signed. It has to be recorded in the company ledger. It must be recorded in a general ledger for this specific purpose. It cannot be tracked like an advance or loan. That way if the CRA questions anything, you will have all the documentation available to show the legitimacy of the loan. 

Also, from a corporate standpoint, withdrawals can present complex tax issues. In addition to all the paperwork, the loan needs to be tracked, especially if the interest charged will be tax deductible for the shareholder. 

As mentioned earlier, this is hardly an ordinary transaction. It should be considered carefully and only with the advice of professionals who have dealt with the issue in the past.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

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Consider Incorporating: Why Choose Sole Proprietorship vs. Corporate Entity

For any established business owner, there comes a time when they have to make the decision whether or not to incorporate. It's an important decision that can't be made lightly! In this article, we will discuss how to incorporate your company as well as some of the benefits you might get from incorporating. There are two primary types of incorporation - Sole Proprietorship and Corporate Entity. We'll also talk about how different structures affect how profits are taxed and how much money is required for startup costs.

First, there are a few advantages to a sole proprietorship: 

● Full control 

● No separate income tax return. Just include everything on the T1. 

● If you operate under your own name, you don't have to register it. If you do need to register, it is less expensive than a corporation. 

Now, here are advantages to a corporate entity: 

● Limited Liability Protection. That means if you are sued, the only assets that a person can get are those that belong to the corporation. Your home, savings, and other assets are protected. If you remain a sole proprietorship, everything is fair game. That means your business assets as well as all your personal assets. 

● Lower Tax Rate. The corporate tax rate is lower than the personal tax rate.

● Dividends. Using the distribution of dividends, it is easier to spread the business income among your family members. 

To begin the process, close the sole proprietorship. That means to cancel the business registration with the Province and contact the Canada Revenue Agency to cancel your business number, HST number, and payroll number. This can be done by telephone. 

Next, you need to transfer assets into the corporation. That includes anything physical like computers, furniture, vehicles, or other equipment. Intangible assets are probably goodwill. There is a formula for this but it will include your client list, trademarks, trade secrets, contracts, etc. 

When transferring assets do it under the provisions of Section 85 of the Income Tax Act by filing the appropriate forms. In this way, you avoid paying taxes on any of the assets, tangible or intangible, 

Your previous Workplace Safety and Insurance Board (WSIB) account will transfer to the corporation. 

There are also the mechanics of incorporating: 

● Name. Using a NUANS report you can find similar names and as long as there are no other existing names, you can proceed. 

● Business address. 

● Shares. Issuing shares of your corporation to yourself and others. 

● Minimum and maximum number of directors. A good choice is a minimum of one and a maximum of ten to give yourself some room to change if necessary. 

● Telephone and email address for official communications. 

Some mistakes you might want to avoid include selling your business assets for only $1.00. That is because the CRA will reassess the assets upward to fair market value and you will then be required to pay capital gains tax on the difference between the purchase price and the CRA-adjusted price. It

is also not a good idea to gift assets or transfer them without any monetary exchange. Again, this is a red flag for the CRA and you will end up paying capital gains taxes. 

The best way to handle a change from a sole proprietorship to a corporation is to work with professionals who have experience in this endeavor. That means your accountant, attorney, financial advisor, and anyone else who has the expertise.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

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How to File the T1 General Return: What You Need and How To Prepare

The Canadian Government has given Canadian citizens a number of ways to file their taxes. Some people may prefer to have an accountant do the work for them, but there are also many that choose to do it on their own. The T1 General Return is one way in which Canadian citizens can file personal income tax information with the Canada Revenue Agency (CRA). It details personal financial information like income, provincial and territorial taxes, deductions, credits etc. In this article, we will discuss how you should go about filing your Canadian Income Tax return and what documents you need before doing so! 

The T1 General Return is also known as the Income Tax and Benefit Return. The CRA website will have a downloadable T1 General Return Package. You need to select the province in which you lived for the year. You can also use a program that you can purchase that will walk you through each phase of the return and the T1 will be automatically filled from the information you enter. 

The T1 summarizes the full return including the total income, net income, deductions, credits and tax due. This form is used to apply for the Canada Child Benefit or GST/HST credits. 

The new-look on CRA package in 2020 has some notable changes such as more pages and larger font. In fact, it doubled in size from four pages to eight. Also, some of the line numbers now have five digits instead of the three or four you may be used to. The change is intended to facilitate the use of software packages available. Some of the alterations include the use of plain language as much as possible, more white space, and larger font.

Page 1 of the T1 General Return still asks for many basic personal information questions like name, province, marital status. Page 2 now requests details about any tax-exempt income under Indian Act and whether or not you need to file a T90 in this instance. On the whole, it should be pretty much the same as with RRSP contributions, childcare, net, and taxable income. 

Page 3 deals with the following: 

Other changes include the ability to pay the balance using PayPal and to check how much time remains for the CRA to finish processing your return. 

When you're filing your taxes, be sure to attach the federal tax information on page 1 of Schedule 1. The CRA also requires that you include Form 428 - Provincial or Territorial Tax for any provinces or territories in Canada. Include this with Page 3 and any receipts, invoices, income statements from work, etc., if these are required. 

Page 4 deals with the bottom line of a refund or tax due, the direct deposit information, and the Ontario Opportunities Fund. 

When filling out your annual tax return, which includes the T1 General Return and all its accompanying forms like federal income tax, provincial taxes, deductions, and credits, etc., you have two choices. The first option is to go old school to complete this task by using paper and pen. You can also download Netfile software from www.cra.gc.ca/getready. With this, you can install it on your PC and have all the forms at your fingertips. This software has a charge associated with it. 

The second option is to reach out to an accountant. Even though this tends to come with a fee, the expert that you hire will know all of the tax laws and get you as many deductions and credits as possible for your income in order to minimize your tax burden. Next year when it is time to file again, you will already have established a relationship with your accountant and it will be much easier to deal with this annual obligation.

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Real Estate for Non-residents: The Ultimate Guide

Canadians love real estate. Many Canadians invest in real estate, either as a property for themselves or to make money on the side. Non-residents can also buy real estate in Canada and sell it on the Canadian market with various tax implications for both parties involved. However, before you go any further, here are some things that you need to know about non-resident real estate transactions: 

1. It is illegal for a non-resident of Canada to purchase land from another person who is not a resident of Canada; 

2. The seller must withhold 15% GST (Goods and Services Tax); 

3. There are no capital gains taxes or income taxes payable by the buyer under certain conditions 

Withholding Taxes 

If you are selling rental property, 25% of the sale price goes to the CRA. If you are selling residential property, then 50% goes to the CRA. The attorney handling the sale will remit this amount, but that is quite a chunk out of your price. The seller can file a Section 116 tax return by April 30 for a refund of the excess taxes based on the actual capital gain. 

However, there is a way to minimize the withholding taxes. If you file a Section 116 Clearance Certificate before the sale closing date, or within 10 days of the completed sale, you can reduce the withholding from 25% of the selling price to 25% of the capital gain. The attorney holds the amount in trust until the CRA gives its approval. Then the lawyer releases the funds to the CRA and they, in turn, issue an official clearance certificate. Then the attorney will release the remaining funds to the seller. 

This process can take between six and eight weeks. Then, as before, the seller must file a Section 116 income tax return to receive their refund if any. Therefore, buyers should factor in the wait when making decisions on purchasing decisions to avoid being frustrated by delays. 

As a Purchaser 

As you can tell, there is a lot of paperwork involved in buying a house. You need to hire an attorney and an accountant to help with the paperwork. The attorney will hold the funds while the accountant will file the Section 116 Clearance Certificate; receipt of the approvals; and final release. As the purchaser, your lawyer will take care of all of your side of the paperwork. It is just a good idea that you understand what is going on. 

The Clearance Certificate will fully protect you as the purchaser from any CRA intervention to collect taxes.

Sometimes the real estate you are purchasing is tax-exempt. This is terrific, except be sure to get copies of all their supporting documentation to prove the tax-exempt status just in case there is some glitch. 

The bottom line is that with careful planning the Canadian non-resident selling real estate can do so and still minimize the withholding taxes. Before you list the property for sale, make an appointment with an accountant to discuss your plans. He or she will ask a lot of questions to determine the best route. Together with the attorney involved in the sale, you can develop the best plan to get you the most out of the property sale. 

Capex CPA has significant experience dealing with non-resident real estate sales. Make an appointment today to discuss your situation and to find the best route to the least amount of taxes. In fact, our staff is familiar with many of the issues surrounding a Canadian non-resident and we are happy to advise on any of those financial matters.

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Beware of Capital Gains by Renting Out a Basement

Whether it is to help defray mortgage costs or to create a little incremental income, many Canadians are eyeing unused space like a basement or extra bedroom and thinking about how handy that rent money would come in every month.  If so, there are some CRA rules that will apply.

If this property is your principal residence and you intend to claim the Principal Residence Exemption (PRE), the tax folks will look very carefully at the transaction when you eventually sell the property at a profit. 

The tax rules provide that if you convert a part of your principal residence (even a single room) to a rental property, you have disposed of the property at its fair market value.  At that same time, you reacquired the property at the new value which becomes your new adjusted cost base (ACB).  This means you will need to report the capital gain for the tax year in which the change happened. While this change allows you to qualify for the PRE, when you eventually sell the house, part of the gain may be taxable.

One option is to change the classification of the entire house to rental property.  If you do that there is a special tax election to let you claim the house as your principal residence if you relinquish any tax depreciation for the rental company.  This is only valid if you claim this as your principal residence.  If you decide to call some other property your principal residence, like a vacation home, the option is off the table.  Also, note that this is not permitted for only a partial change in use like a single room or basement.

 There is a reprieve, however.  The CRA says that there is no change in use if you meet three conditions:

•  The rental is “ancillary” to the home's use as your principal residence.

•  There are no “structural changes” made.

•  You don't deduct any tax depreciation on the portion of the house you are renting out.

If you don't meet these standards, when you sell the house that now has a rental unit, you have to calculate the tax for the portion that was used as rental against the wholesale price.  This can be based on square meters or feet, or a number of rooms.  However, the CRA must consider the allocation “reasonable”.  Otherwise, you need to report any capital gains on the portion that you rented out.

The CRA offers publications on how they interpret some of these rules.  Recently they said that to be considered “ancillary,” the space must be “subordinate or secondary to a more important or primary purpose”.  It also says that it will review each case separately to decide if the percentage used is appropriate to the taxation or not.

Structural changes are considered if they are permanent, like adding a kitchen area or removing or adding walls.  Again, the CRA will review the individual facts and circumstances to make their determination.

If all of this sounds confusing and complicated, it is.  The best way to proceed is to discuss your ideas with an accountant in Mississauga before putting the “for rent” sign outside your door.

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Non-Resident Owning Real Estate in Canada Tips

If you are not a Canadian citizen but want to purchase real estate, there are, of course, rules and regulations.  Many of them vary by area, so be sure to double-check especially if you are interested in agricultural or recreational property purchases.

In order to determine your residency status, you should get solid clarification because it will affect your taxation.  For example, if you are married to a Canadian citizen or permanent resident and jointly purchasing property, you could be exempt.  On the other hand, if you are buying in with some Canadian pals, you could be liable for taxation even though you only own a small share.  Also, if you are making the purchase to rent the property and you have no intent to be a Canadian resident yourself, you may be liable for additional taxation.  Just be sure you get the right information the first time and before you put money down.

 Secure a Mortgage 

You may be required to secure a local mortgage.  Canadian banks have been known to require non-residents to offer larger down payments, like 35%.  You will also need to identify the source of the funds and gifts are not permitted.  Banks may be more lenient if you are a U.S. Citizen or buying the house to live in rather than as an investment.  Generally, this down payment is about 20%.

To apply for the loan, you will need a Canadian bank account, which you must set up in person.  If you are already banking with an international financial institution that has a Canadian presence, you may be able to set up your account remotely.  Transferring money internationally can prove expensive and will take several business days to clear.  Some currency specialists can expedite the process with a low-cost fee.

 Working through your own bank, you should verify exactly what will be required.  Usually, it is a deposit of at least 35% of the property value, a reference letter from your bank, proof of income, bank statements concerning your spending habits, a letter from your employer verifying your salary, and a clear Canadian credit check.

In addition to taxes, there will be some fees.  Both taxes and additional costs will vary depending on your non-resident status and the province in which you are making the purchase.  You can, however, expect:

•  Legal and notary costs

•  If purchasing in or around Toronto, Non-resident Speculation Tax (NRST) of about 15% of the property value.

•  Land transfer taxes

•  Annual property taxes or vacancy taxes.

•  Capital gains taxes if you are buying as an investment, which will come to about 25% of the sale price when it happens.

If you are indeed serious about purchasing real estate in Canada, a good place to start is with a Canadian CPA. A good accounting firm will be able to provide you with counsel and explain all of the intricacies of buying property as a non-resident and advice about the best way to proceed for your particular circumstances.

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How Does a Health Spending Account Work for Small Businesses in Canada?

A Health Spending Account (HSA) is a simple alternative to traditional health insurance.  It can include both medical and dental and the benefits are completely tax-deductible to the employer. An HSA can also be called Health Care Spending Account (HCSA) or Private Health Services Plan (PHSP), but they are all essentially the same concept.  An HSA applies to either a small business owner with staff or an incorporated individual. 

For the small business, it must employ staff and the staff must be classified as arm's length.  The CRA terms ‘arm's length’ when people are not related and have separate interests.  So, a spouse or child employed by a small business is not at arm's length. 

If your business qualifies, you can offer HSA as an alternative to a traditional health insurance benefit.  For you, there are no premiums but the program can be customized and is easy to manage.  For the employee, it is a tax-free benefit with flexibility and good health care coverage.

Here is how it works:

The employer categorizes employees (management, executives, full time vs. part-time) and then declares a spending limit for each category.  The plan is funded by the employer in a pre-determined monthly amount.  As the employee needs medical attention, he or she pays for the service on their own but then makes a claim against the HSA and is reimbursed tax-free up to the limit established for their category.  The employee gets to choose which claims to submit for reimbursement.  Any unused funds are returned to the employer.  Neither party pays any premium or deductible.  The employer does pay an 8% fee for the administration of the accounts. 

The employer knows how much the benefit will cost upfront.  If the employee makes no claims, the employer doesn't pay out anything, including any unused portions of benefits.  Except for the administrative fee, it is free.  The employer also avoids listening to employees mutter about how the benefit could have been better allocated.

The employee gets to use the money as they choose toward any medical or dental expenses.  So, if they have ongoing and expensive medication needs, they will be happy; or if orthodontia is looming, they can apply for the benefit there.  For those individuals with health conditions, there is no worry about being excluded for a pre-existing health issue and there is no age limit.  The downside is that HSAs are geared toward routine expenses rather than a catastrophic event. 

In the long run an HSA is a good plan for a small business since it offers a medical benefit and the employees get to choose how to allocate the money, resulting in more flexible coverage than a traditional plan. Plus the cost is minimal. However, before setting this up, it is a good idea to discuss the plan with your accountant. He or she may have some ideas you hadn't considered, plus they should be very familiar with your current tax burden and the amount of benefit you will derive from an HSA.

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First Time Independent Contractor Start-Up Guide

Starting a new business is exciting but still takes careful planning.  Some of the things to consider are whether your business idea is viable, whether you can secure financing, and whether you possess the qualities for running the operation, like self-motivation and time management, risk acceptance or aversion, and a proper support system available. 

The CRA has specific criteria to define an independent contractor over an employee.  These include:

•  You determine how or when the work is performed.  An employee is directed to work sites.

•  You own and maintain your own tools.  An employee uses the tools provided by the hirer.

•  Financial risk including securing and completing contracts.  An employee gets paid regardless.

Understanding the finances is important.  You will need to know how much money is necessary to start and then continue running the business until a profit is shown.  You will need to know whether you need to invest funds in purchasing or leasing tools or equipment.  Much of this depends on your personal financial reserves and credit history.

Have a Business Plan

Start with a business plan.  Do not skip this step.  It will be necessary to present to financial institutions and is a good road map for your progress.  This will include the basics like name, date, etc.  You need to have a specific summary of the business including mission and vision statements, detailed product or service descriptions, and background of skills or abilities to support the plan.  You will also need a solid marketing plan.  As you can tell, all of this is to show that you have carefully and thoroughly thought out all of the aspects of your proposed business.

You will need to decide on a business structure, i.e. sole proprietorship, partnership, or incorporation.  Along with this, you will need to decide if you will do business in a single or multiple provinces or federally.  You will need to name and register the business and apply for all appropriate licenses and permits.  Along with this will be the necessary insurance and safety requirements. 

Set up a business banking account and bookkeeping records.  If you will need help, decide whether it will be through employees or independent contractors.

Understand the nuances of your field.  It may mean that you pre-qualify as a supplier to be part of a database where you can get more contracts or jobs.  In addition, you will need to find resources to tap for referrals and contract opportunities.  You may be required to submit a proposal or bids to get the job.  If you are not good at numbers or verbiage, you may want to find a good resource.

Speaking of resources, one of the best choices is to start by contacting an accounting firm.  Especially one that deals with small businesses and start-ups.  They have the experience and expertise to talk you through all of the steps necessary to get running and on the right foot.  It is also likely that they will have additional tips and tactics that will stand you in good stead.  They can also be a gateway to financiers to underwrite your enterprise.

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Buying Real Estate Under a Corporation

If you are thinking about purchasing some real estate, you are probably trying to figure out the best way to finance the deal.  One option is to have a corporation purchase the property instead of buying it in your personal name.  The question is simple enough but the answer can be quite complex.

Liability

Commercial rental property has a higher risk of liability, especially compared to residential rentals.  In either event, the real estate purchased under a corporate name protects your personal assets.  If there should be an issue, the corporation takes the financial burden, not your home, investments, or other assets.  Just realize that there will be more expense and paperwork with a corporation including annual income taxes.

There is no direct tax advantage whether the property is corporately or individually owned. 

The lifetime capital gains exemption applies only to the disposition of an active business corporation. Real estate corporations are passive income so the $800,000 exemption won't apply here.

If you want to minimize estate taxes but still pass your assets on to your family, the real estate held in a corporation is a good option. There are some income tax act elections that will allow for flexibility in estate distributions.

If this is sounding pretty good, here are some strategies that may apply.

•  Your corporation makes a tax-free loan to you.  This must be a legitimate loan with all the paperwork in place like an agreement and mortgage.  You must also put up collateral like your personal residence.

•  You must pay reasonable interest.  You can easily find the current market rate and charge that.

•  The agreement must have a reasonable repayment period, usually not to exceed 20 years. Again, look to your local banks to see the amortization period they establish for conventional mortgages.

•  You must be an employee of the company.  So you must receive regular payroll checks.

One thing to avoid is having the corporation pay you a bonus or a single salary payment.  This is not financially advantageous because the CRA will take half of that lump sum in taxes and you will only be left with 50% of the amount for the purchase of the property.

There are a number of legal and technical details.  This includes corporate tax returns, personal tax returns, documentation, and so forth.  There are certainly tax benefits on both sides but the deal must be carefully structured to provide the best protection.  This applies if the real estate purchased is going to be used for a personal residence or for income producing rental property.

This is not a DIY project.  In order to consider all the consequences, discuss your ideas with a tax consultant.  If there are any errors in the set up, the CRA can include the loan as personal taxable income, which will be exactly the opposite of what you are trying to achieve.  Select an accounting firm that has experience with these types of loans and that regularly works with small businesses.

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HST Quick or Simple Method

HST or Harmonized Sales Tax is paid on most goods and services in Canada.  In order to remit this amount to the CRA, you must calculate the remittance.  To calculate it, the corporation totals Input Tax Credits (ITCs) on all expenses and subtracts them from the HST collected on sales.  Another option is called the Quick method, which bases the amount on a percentage of sales. 

The quick method affects only how you complete the HST remittance.  The business still charges HST at the same rate, you will still pay HST on expenses, and track HST on all transactions. 

However, when you calculate using the quick method,

•  Start with sales

•  Add HST collected

•  Multiply that number by a percentage based on your business

If you sell goods, like a grocery store, use 4.4%; for services like a fitness instructor, you use 8.8%.  Sales to other provinces will be somewhat different.

•  Subtract $300 of ITC on eligible purchases plus full HST on any capital asset purchases.

This gives you the net HST.

Some of the requirements include that you must be operating the business for at least one year, plus revenues on taxable supplies must be under $400,000 over the previous year.  There are some businesses like accountants, attorneys, actuaries, who are not eligible to use this method.  Plus some non profits are prohibited.  Pretty much everyone else, whether they are or are not incorporated, have the green light to use this calculation method.

Just because you can use it, should you?  If you dread adding all the ITCs, you might want to give it a try.  There are some businesses that will pay significantly less HST using the Quick calculation versus the standard method.  For those who provide services with minimal expense, like that fitness instructor working from home, the quick method is preferred, but if you are renting a storefront, it may not be as good.  Back to someone working from home, using the quick method means you won't be able to deduct rent ITC.

If you file HST annually, you must elect the quick method by the end of the first quarter, March 31, 2021.  You need to complete and remit Form GST74, Election and Revocation of an Election to Use the Quick Method of Accounting.  You can find the form on the CRA website and download it.

For many small businesses, the quick method is a reduction in the amount they send to the CRA so there is more usable cash available.  However, if you have a significant number of taxable expenses, the quick method won't gain you any financial advantages, but it can save you time and effort in calculating.

Before making a final decision, check with your accountant.  Especially if he or she is used to dealing with small businesses, you will have access to sound advice and recommendations.  Capex CPA has those experts who are more than willing to discuss your particular circumstances and offer their opinion.

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